Dixon Company collected cash in Year 1 from a customer for services to be performed beginning January, Year 2. Indicate whether each of the following statements about this transaction is true or false.________ a) Dixon's Year 2 income statement would not be affected by this transaction.________ b) Dixon's Year 1 statement of cash flows would be affected by this transaction.________ c) This transaction is an asset exchange transaction.________ d) The revenue for the services provided will be recorded in Year 2.________ e) The transaction increases Dixon's liabilities.
What will be an ideal response?
a) F b) T c) F d) T e) T
a) This is false. Because work will not begin until Year 2, the revenue is recognized in Year 2.
b) This is true. Only the Year 1 statement of cash flows is affected because no cash is received in Year 2.
c) This is false. Collecting a cash advance is an asset source transaction that increases assets (cash) and increases liabilities (unearned revenue).
d) This is true. Revenue will be recognized only when services are performed, beginning in Year 2.
e) This is true. The transaction increases unearned revenue, a liability.
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